Buffett utility deal may signal big push to invest cash
"MidAmerican Energy Holdings Co, a core part of Warren Buffett's sprawling business empire, is becoming a favourite way for the "Oracle of Omaha" to invest the billions of dollars of cash on Berkshire Hathaway Inc's balance sheet"
"The unit's $5.6 billion US acquisition of Nevada's NV Energy , announced last week, vaulted MidAmerican to ninth place in terms of U.S. electric utility customers from fourteenth, according to data compiled by Reuters, and fits right into Buffett's strategy of owning businesses with large, predictable cash flows.
Berkshire Vice Chairman Charles Munger last year said MidAmerican could deploy as much as $100 billion over the next 10 to 15 years".
"The energy sector looks to be a pathway for (Buffett) to invest a lot of money," said David Rolfe, chief investment officer of St. Louis-based Wedgewood Partners, which has about $300 million invested in Berkshire Hathaway stock. "There is a very good chance that 10 years from now it's the largest part of Berkshire, easily."
Including the NV Energy deal, which is the largest in the global energy and power sector so far this year, MidAmerican makes up only about 10 percent of Berkshire's pre-tax earnings, dwarfed by the company's vast insurance holdings. But that is expected to change.
"What (MidAmerican and railroad Burlington Northern Santa Fe) have done is guaranteed the cash flows get reinvested back into those businesses," said Morningstar analyst Greggory Warren. "It eliminates some of the risk to whoever succeeds him of having too much cash on the balance sheet and not enough good ideas."
BNSF has been investing in the expansion of rail infrastructure in the United States and in new technologies such as powering locomotives with natural gas in a bid to increase profitability.
In his most recent letter to shareholders, Buffett called MidAmerican's earnings "recession-resistant" because the company offers "an essential service."
"Buffett has also figured out how to generate stable returns in renewable energy by investing in projects that come with long-term contracts to sell their output to utilities.
The regulated utilities are MidAmerican's primary focus, however, and include Oregon-based PacifiCorp, Iowa's MidAmerican Energy Co and Northern Powergrid in England. Together, those utilities will serve 8.4 million customers once NV Energy is folded into the mix".
